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S. 1421Senate119th Congress (2025-2027)In Committee

Child and Dependent Care Tax Credit Enhancement Act of 2025

Sponsored by Tina SmithSen. Tina Smith (D-MN)
Introduced April 10, 2025

AI-Generated Summary

Updated November 24, 2025 at 1:06 AM UTC

The Child and Dependent Care Tax Credit Enhancement Act of 2025 expands the existing tax credit for child and dependent care. It raises the income limits and expense caps, adjusts the credit percentage based on income, makes the credit fully refundable for eligible U.S. residents, and adds an automatic inflation adjustment. The changes affect individual and married taxpayers who claim the credit for qualifying care expenses.

Key Provisions

  • The credit’s “applicable percentage” starts at 50 % and is reduced by 1 percentage point for each $2,000 of income above $125,000, but it can’t go below a “phaseout percentage” that starts at 20 % and drops by 1 percentage point for each $2,000 of income above $400,000.
  • The maximum amount of qualifying child‑care expenses that can be used for the credit is raised from $3,000 to $8,000 for one qualifying individual and from $6,000 to $16,000 for two or more qualifying individuals.
  • Married couples who file separate returns are treated as if they filed jointly for calculating the credit, and the total credit for both spouses can’t exceed what they would have gotten filing jointly.
  • Starting after 2025, the $125,000 income threshold and the expense limits will be increased each year based on the cost‑of‑living adjustment, rounded down to the nearest $100.
  • The credit is made fully refundable for taxpayers (or either spouse on a joint return) who live in the United States for more than half the year, meaning they can receive the credit even if it exceeds their tax liability.
  • All changes apply to tax years beginning after December 31, 2024.

Legislative Activity

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1 earlier action
SenateIntro Referral Latest Action

Read twice and referred to the Committee on Finance.

Finance Committee

April 10, 2025

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SenateIntro Referral

Introduced in Senate

April 10, 2025

SenateIntro Referral

Read twice and referred to the Committee on Finance.

Finance Committee

April 10, 2025

Bill Text

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Introduced in SenateIssued April 10, 2025

II

119th CONGRESS

1st Session

S. 1421

IN THE SENATE OF THE UNITED STATES

April 10, 2025

Ms. Smith (for herself, Mrs. Shaheen, Mr. Warnock, Mr. Wyden, Mrs. Murray, Mr. Fetterman, Mr. Schatz, Ms. Duckworth, Ms. Hirono, Mr. Van Hollen, Mr. Durbin, Ms. Klobuchar, Mr. Heinrich, Ms. Cantwell, Mr. King, Mr. Merkley, Mr. Blumenthal, Mr. Booker, Ms. Slotkin, Mr. Reed, Mr. Bennet, Mr. Murphy, Mr. Welch, Mr. Gallego, Mr. Schumer, Mr. Schiff, Ms. Baldwin, Mrs. Gillibrand, Mr. Whitehouse, and Mr. Luján) introduced the following bill; which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to enhance the Child and Dependent Care Tax Credit and make the credit fully refundable for certain taxpayers.

1.

Short title

This Act may be cited as the Child and Dependent Care Tax Credit Enhancement Act of 2025.

2.

Enhancement of Child and Dependent Care Tax Credit

(a)

In general

Paragraph (2) of section 21(a) of the Internal Revenue Code of 1986 is amended to read as follows:

(2)

Applicable percentage

(A)

In general

For purposes of paragraph (1), the term applicable percentage means 50 percent reduced (but not below the phaseout percentage) by 1 percentage point for each $2,000 (or fraction thereof) by which the taxpayer's adjusted gross income for the taxable year exceeds $125,000.

(B)

Phaseout percentage

For purposes of subparagraph (A), the term phaseout percentage means 20 percent reduced (but not below zero) by 1 percentage point for each $2,000 (or fraction thereof) by which the taxpayer’s adjusted gross income for the taxable year exceeds $400,000.

.

(b)

Increase in dollar limit on amount creditable

Subsection (c) of section 21 of the Internal Revenue Code of 1986 is amended—

(1)

in paragraph (1), by striking $3,000 and inserting $8,000; and

(2)

in paragraph (2), by striking $6,000 and inserting $16,000.

(c)

Special rule for married couples filing separate returns

Paragraph (2) of section 21(e) of the Internal Revenue Code of 1986 is amended to read as follows:

(2)

Married couples filing separate returns

(A)

In general

In the case of married individuals who do not file a joint return for the taxable year—

(i)

the applicable percentage under subsection (a)(2) and the number of qualifying individuals and aggregate amount excludable under section 129 for purposes of subsection (c) shall be determined with respect to each such individual as if the individual had filed a joint return with the individual's spouse, and

(ii)

the aggregate amount of the credits allowed under this section for such taxable year with respect to both spouses shall not exceed the amount which would have been allowed under this section if the individuals had filed a joint return.

(B)

Regulations

The Secretary shall prescribe such regulations or other guidance as is necessary to carry out the purposes of this subsection.

.

(d)

Adjustment for inflation

Section 21 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

(i)

Inflation adjustment

(1)

In general

In the case of a calendar year beginning after 2025, the $125,000 amount in paragraph (2) of subsection (a) and the dollar amounts in subsection (c) shall each be increased by an amount equal to—

(A)

such dollar amount, multiplied by

(B)

the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2024 for calendar year 2016 in subparagraph (A)(ii) thereof.

(2)

Rounding

If any dollar amount, after being increased under paragraph (1), is not a multiple of $100, such dollar amount shall be rounded to the next lowest multiple of $100.

.

(e)

Credit made refundable

Section 21(g) of the Internal Revenue Code of 1986 is amended to read as follows:

(g)

Credit made refundable for certain individuals

If the taxpayer (in the case of a joint return, either spouse) has a principal place of abode in the United States (determined as provided in section 32) for more than one-half of the taxable year, the credit allowed under subsection (a) shall be treated as a credit allowed under subpart C (and not allowed under this subpart).

.

(f)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2024.